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Play Updates, Saturday, 12/10/2005

In Play Updates and Reviews

by OI Staff

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Call Updates

Apache - APA - close: 69.80 change: -1.18 stop: 65.95 *new*

After a strong week the energy sector experienced some profit taking on Friday. APA was not exempt and the stock closed back under the $70 level. Overall we remain bullish on the group, especially long-term, but the short-term looks good as long as crude oil can maintain its recent breakout over $60. This week the oil stocks could see some volatility surrounding the December 12th OPEC meeting even though the markets expect no change from the cartel's production quotas. Readers have a choice with APA. You can watch for another bounce from minor support near $68.00 or wait for a move over $70.00 or $71.00 as a new entry point. We are going to make an adjustment to our stop loss. At 66.99 it looks a little tight and due to our bullish bias we don't want to be stopped out too early. More conservative traders may want to leave it at $66.99. We're going to adjust ours to $65.95. Our end of January target is the $76.00-77.00 range. The Point & Figure chart points to an $83 target.

Suggested Options:You can choose the January or April calls. We do not plan on holding over the late January earnings report.

It's alive! Shares of D displayed plenty of relative strength on Friday. The stock added 2.55% on volume well above its average. The move is a technical breakout over the 50-dma, 100-dma and last month's highs near $78.25. This move can be used as a new bullish entry point or look for a dip back toward the $78.50-78.25 range. Our target is the $84.50-85.00 range compared to the P&F chart, which points to a $92 target.

Suggested Options:We are suggesting the January calls. We prefer the $75 or $80 strikes.

FMC is a technical breakout play. The stock broke through the top of its four-month descending channel a couple of weeks ago. A week ago FMC broke through technical resistance at its simple 200-dma. While the stock has not been able to mount a follow through on that last breakout the overall pattern remains bullish. We've been expecting a dip back toward the $52.50 region. Yet a new look at some of the short-term technical oscillators suggests that FMC may not pull back much further. Depending on your trading style you can look for a new bullish entry point on a move over $54.50, which would be a minor breakout over its one-week consolidation; a move over the 200-dma, or a move over its 100-dma and the December high ($55.41). The Point & Figure chart points to a $62 target. We are targeting a run into the $59.85-60.00 range.

Our bullish play in FMX may be over before it ever gets started. The stock lost another one percent on Friday and fell below short-term support near $68.00. What makes this more significant is that the Mexican markets hit a new high on Friday. We are currently on the sidelines waiting. Our strategy suggests a trigger to buy calls at $70.65. If we are triggered we'll target a run into the $74.75-75.00 range. The P&F chart points to an $81 target. Should FMX fail to rebound on Monday or Tuesday next week we'll drop FMX as a candidate.

Suggested Options:We are not suggesting new positions at this time. If FMX hits our trigger we like the January calls.

HYDL is a new bullish candidate from our Thursday newsletter. We do not see any change from our original play description so we're reposting it here:

HYDL is part of the oil services sector. A quick look at the OSX oil services index and you'll see that the group is hitting new all-time highs. HYDL looks tempting because it's been consolidating under resistance in the $70.00-70.85 range for the last few months. The pattern actually looks like an inverse or bullish head-and-shoulders pattern with the neckline near $70.00. If the pattern holds true then it points to an $85 target. Coincidentally the P&F chart for HYDL points to an $88 target. We don't want to initiate longs with HYDL under resistance. Therefore we're suggesting a trigger at $71.01. If triggered we'll target a run into the $78-80 range by its January earnings report.

Suggested Options:Traders can choose the January or March calls. March options have more open interest but remember that we don't plan on holding over the late January earnings report.

KMG is another energy stock that experienced some profit taking on Friday after a strong week. A few days ago the stock broke out from a two-month consolidation pattern and over resistance at the $90.00 level. We think KMG will be able to challenge its September highs. The P&F chart points to a $106 target. Readers can choose to enter positions here or look for a dip back toward support at $90.00 and its 10-dma. Our mid January target is the $98.50-100 range.

Suggested Options:We do not want to hold over KMG's late January earnings report so we're suggesting the January calls.

Oddly enough the new highs in natural gas have not translated to new relative highs for KMI. The stock did breakout from its consolidation pattern in early December and rallied to the $95 level but KMI has struggled to produce any upward follow through. Wednesday's session looks like a bearish engulfing candlestick but there was no follow through on that pattern either. We remain bullish on the stock but traders may wan to wait for a dip toward the $92.50-92.00 region before entering new positions. The 10-dma looks like short-term support near $92.50. Now that winter has begun (well technically the first day of winter is December 21st this year) investors are likely to worry more and more about potential natural gas shortages, which should underpin the commodity and stocks in the sector. The P&F chart for KMI points to a $104 target. Our target is the $98.50-100 range. We do not want to hold over the mid January earnings report.

PII is still struggling after Thursday's downgrade from Banc of America. The stock tested support again at the $49.00 level on Friday morning but was unable to rebound much higher. We are not suggesting new plays at this time although a move over 50.75 could be used as a potential entry point. More conservative traders may just want to exit early right here or raise their stops toward $49.00. We're going to keep our target in the $54.00-55.00 range. We do expect some resistance near $53 at the top of the gap down.

ROK hasn't made any progress for a week. The stock has traded sideways in a $1.50 range for the last five sessions stuck under resistance at the $60.00 level. We are not suggesting new positions at this time. Our target is the $61-62 range but more conservative traders may want to exit near $60. FYI: the P&F chart points to a $69 target.

SUN is another energy stock that hit some profit taking on Friday. The pull back toward the $81.50 level looks like a new bullish entry point. However, keep in mind that SUN may continue to dip toward the $80.00 mark before bouncing. SUN is a refiner and the refining industry has been one of the best performing groups all year long. The P&F chart for SUN points to a $93 target. Our target is the $89.90-90.00 range. Don't forget that we could see some volatility in the group as investors react to the December 12th OPEC meeting.

Suggested Options:We're going to suggest the January options. Be sure to double-check your option symbol. There are some odd symbols out there due to SUN's 2-for-1 split back in August.

TOT is a new bullish candidate from our Thursday newsletter. We do not see any change from our original play description so we're reposting it here:

TOT has been consolidating between its rising 200-dma and the $130 region for the past two months. Now with crude oil breaking out we believe TOT is poised to breakout over resistance at the $130 level. We'll suggest a trigger to buy calls at $130.25. If triggered we'll target a rise into the $136-137 range before its February earnings report. The P&F chart for TOT points to a $152 target.

TSCO has still not been able to recover yet from Wednesday's downgrade. The stock was on a tear hitting new three-month highs in December and on rising, above average volume until Wednesday. We remain bullish but suspect that TSCO could dip back toward previous resistance and what should now be support near $52.50. Of course the only problem with that is our stop loss, which was recently moved to $52.75. More conservative traders may want to keep their stops where they are. We're going to give TSCO some room to maneuver and adjust our stop lower to $51.95. TSCO's P&F chart points to an $87 target. Our target is the $57.00-58.00 range. We do not want to hold over the mid January earnings report.

VLO is a new bullish candidate from our Thursday newsletter. We do not see any change from our original play description so we're reposting it here:

Refining stocks have been one of the best performing groups all year and they're not showing any signs of stopping. We like VLO because today's 2.4% gain appears to be a breakout over its two-month trendline of resistance produced by its lower highs. This is also a breakout from a two-month consolidation pattern and its weekly technical oscillators are looking bullish again. The P&F chart for VLO points to a $127 target. We are going to suggest call positions with VLO above $102.50. Our target is the September highs at $117.00. Please note that VLO is due to split 2-for-1 on December 16th. That means your option positions will double in number while halving in value. Our post-split target will be $58.50. Our post-split stop loss will be $49.74. FYI: VLO is also a current strangle play in the strangle section.

Suggested Options:We are suggesting the March calls because we want to hold VLO right up to its end of January earnings report.

Put Updates

Magna Int. - MGA - close: 67.45 chg: +1.34 stop: 70.31

Shorts may have gotten spooked on Friday. MGA spiked higher at the opening bell after rival parts maker ARM was upgraded by Goldman Sachs. Shares of ARM rallied 15%. We believe the technical and fundamental outlook for MGA is bearish. Technically the stock is in a four-month bearish trend with a P&F chart that points to a $61 target. Fundamentally the restructuring programs from GM and Ford are likely to include a smaller production schedule, which means less business for MGA. A failed rally under the 50-dma near $69 could be used as a new bearish entry point. Our target is the $63-62 range.

Suggested Options:We would not suggest new positions right here. Watch for a failed rally under the 50-dma first. If that occurs we'd consider the January 2006 puts.

Drum roll please... NFLX has finally broken down and fallen through support at the bottom of its rising channel. The stock consolidated sideways for two weeks between $27 and $28. On Friday the stock lost 6.4% on above average volume. Our suggested trigger to buy puts was at $25.99 so the play is now open. Broken support at $27.00 should now act as new resistance. If you missed the entry on Friday you could open positions here at 25.74 or look for a failed rally/oversold bounce back towards $27. We are lowering our stop loss to $28.15. Please note that we do expect some support near $25.00 and its rising 100-dma (24.63). NFLX is heavily shorted with the latest data putting short interest at 27.2% of the 54.3 million-share float. Any bounce from $25.00 may be a big exaggerated but Friday's decline looks like a trend change. Our target is the $22.50 level. We do not want to hold over the mid January earnings report.

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

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AmerisourceBergen - ABC - cls: 81.43 chg: -0.28 stop: n/a

This is it. We've got five days left before December options expire. ABC is in position to score if it can maintain its bullish trend. If the markets dip we expect ABC to dip toward the $80 level, which should be short-term support. We are not suggesting new positions. Our estimated cost for our strangle is $2.80. For the last couple of months we have been targeting a rise to $5.00 for the strangle but traders may want to adjust their target to something lower. We're going to adjust our target to $4.25. Currently the December $80 calls (ABC-LP) are trading at $1.70bid/$1.90ask.

Suggested Options:We are not suggesting new strangle positions at this time.

The oversold bounce in AEOS continued on Friday. The stock tested overhead resistance at its 10-dma. We're not suggesting new plays. The current strangle has an estimated cost of $2.35 with the January $27.50 calls (AQU-AY) and the January $22.50 puts (AQU-MX). We are targeting a rise to $4.70. FYI: currently the January $22.50 puts are trading at $2.00bid/$2.15ask.

Suggested Options:We are not suggesting new strangle positions at this time.

ANF is slowly making a comeback and its MACD indicator is nearing a new buy signal. The stock's relative strength is impressive considering news out on Thursday night that the SEC had launched a nonpublic, informal inquiry into trading of its stock. Contributing to Friday's strength was news that an analyst had reiterated their "out perform" rating and raised their estimates on ANF's earnings. The stock is poised to assault resistance at the $65.00 level soon. We have six weeks to go before January options expire. We are not suggesting new strangle positions at this time. The options in our strangle are the January $65 calls (ANF-AM) and the January $55 puts (ANF-MK). Our estimated cost was $5.15. We're looking for a rise to $8.50. Right now our target may be out of reach. It really depends on how ANF performs during any Santa Claus rally should one appear.

Suggested Options:We are not suggesting new strangle positions at this time.

BCSI garnered some positive analyst comments on Friday following the company's analysts day but the news had no affect on the share price. The stock continues to trade inside its $44-46 range. We're suggesting that readers consider launching new strangles in the $44.50-45.50 entry window. We're suggesting the January $50 call and the January $40 put. Our estimated cost is $3.25. We're aiming for a rise to $5.50. Remember we have six weeks left before January options expire.

Suggested Options:We'd like to buy February strikes but there aren't any available yet. That leaves us with January or April strikes and the Aprils are too expensive for us. As a strangle we want to buy an out of the money call and an out of the money put. At current prices our cost would be $3.25. We'll aim for a rise to $5.50.

CME continued to bounce on Friday but the stock seemed to stall under its simple 10-dma. We have six weeks left before January options expire. We are not suggesting new strangle positions at this time. Our current play involves the January $400 calls (CMJ-AK) and the January $350 puts (CMJ-MA). Our estimated cost was $26.70. We're aiming for a rise to $40.00 in the strangle before January options expire. Some of our readers may want to plan an exit near the 100-dma no matter what the value of our strangle position is. Currently the CMJ-MA puts are trading at $13.40bid/$14.00ask.

Suggested Options:We are not suggesting new strangle positions at this time.

DHI is still showing some resilience with an intraday bounce from its lows near $35.00 on Friday. We are not suggesting new strangles in DHI at this time. Our current play involves the January $35 calls (DHI-AG) and the January $30 puts (DHI-MF). Our estimated cost was $3.15. We're aiming for a rise to $6.00.

Suggested Options:We are not suggesting new strangle positions at this time.

Hmm... FS displayed some relative strength on Friday although we can't find any news to account for the nearly 3% rally higher. What is noteworthy is that the rally stalled near round-number resistance at the $50.00 mark. This may have just been an oversold bounce in an otherwise very bearish trend. However, the move did turn FS' latest weekly candlestick into a hammer pattern, which is normally seen as a bullish reversal pattern. We are not suggesting new strangles at this time. The options in our strangle were the January $60 calls (FS-AL) and the January $50 puts (FS-MJ). Our estimated cost was about $2.60. We're aiming for a rise to $5.00 or more. FYI: the FS-MJ puts are trading at $2.25bid/$2.55ask.

Suggested Options:We are not suggesting new strangle positions at this time.

LEA also displayed some relative strength on Friday. The stock's 3% gain looks like an oversold bounce that was inspired by an upgrade for rival parts maker ARM. While we have six weeks left before January options expire this rally on Friday might be a signal for more conservative traders to think about exiting early. We are no longer suggesting new strangle positions. The options in our strangle are the January $35 calls (LEA-AG) and the January $25 puts (LEA-ME). Our estimated cost was $1.60. We are targeting a rise to $3.20 or more. FYI: the LEA-ME puts are trading at $0.50bid/$0.60ask.

Suggested Options:We are not suggesting new strangle positions at this time.

Time is almost up for this play. We have five days left before December options expire. Our Dec. $95 calls are in the money but we need to see LTR make a run for the $100 level if we're going to be profitable. More conservative traders may want to exit early to protect/salvage their capital. We're not suggesting new plays. The options in our strategy are the December $95 calls (LTR-LS) and the December $85 puts (LTR-XQ). Our estimated cost is about $3.05. We plan to exit if our strangle rises to $5.00 or if shares of LTR hit 99.90. Currently the LTR-LS calls are trading at $2.10bid/$2.40ask.

Suggested Options:We are not suggesting new strangle positions at this time.

PAY hasn't made a lot of progress after reporting earnings on December 1st. Instead the stock has fallen into a new trading range in the $23-24 area. Fortunately, some of the longer-term trends remain bullish but we only have six weeks left before January options expire. We're not suggesting new positions. Our current strangle involves the January $22.50 calls (PAY-AX) and the January $17.50 puts (PAY-MW). Our estimated cost was $2.60 and we're aiming for a rise to $4.50 or more. Currently the PAY-AX calls are trading at $1.80bid/$2.30ask.

Suggested Options:We are not suggesting new strangle positions at this time.

Unfortunately, unless PDLI produces a drastic move either direction in the next few days this play is going to be a loser. The stock has been stuck in multiple sideways trading ranges and doesn't appear to be breaking out any time soon. We have five days left before December options expire. The options in our strangle are the December $30 calls (PQI-LF) and the December $25 puts (PQI-XE). Our estimated cost was at $1.80. We have adjusted our target to breakeven at $1.80.

Suggested Options:We are not suggesting new strangle positions at this time.

Investors must have gone bargain shopping on Friday because SPC is yet another stock that produced a sharp rebound on Friday in spite of being stuck in a long-term bearish trend. That being said the stock remains under short-term resistance near $19.25. The larger problem here is that we're running out of time. The December options expire in five days. More conservative traders may want to plan an exit near breakeven assuming SPC provides another move lower. We're going to follow our own suggestion and adjust our target to $1.25. We are not suggesting new strangle positions at this time. Our estimated cost for this strangle was $1.25. The options in our suggested strangle are the December $22.50 calls (SPC-LX) and the December $17.50 puts (SPC-XW).

Suggested Options:We are not suggesting new strangle positions at this time.

Energy stocks pulled back on Friday as investors lock in some profits after a strong week. This kept shares of STR under the $80 level. There are six weeks left before January options expire. We are no longer suggesting strangle positions in the stock. Our strangle involves the January $80 calls (STR-AP) and the January $70 puts (STR-MN). Our estimated cost was $5.10 and we're aiming for a rise to $9.50 or more.

Suggested Options:We are not suggesting new strangle positions at this time.

It looks like TXI's upward momentum has stalled as investors wait for the company's earnings report. The company is expected to report earnings on December 15th. Unfortunately, we've found another data source that lists TXI's earnings on December 22nd. We are not suggesting new strangle positions but traders looking for a new play might consider a strangle with the April options. The options in our strangle are the January $55 calls (TXI-AK) and the January $45 puts (TXI-MI). Our estimated cost is $2.70. We're looking for a rise to $5.00 or more.

Suggested Options:We are not suggesting new strangle positions at this time.

VLO pulled back on Friday as traders took profits in the energy sector. Yet the pull back did not threaten the recent breakout. We are not suggesting new strangle plays. Our current play involves the January $110 calls (VLO-AB) and the January $90 puts (VLO-MR). Our estimated cost was $5.85 and we're aiming for a rise to $9.50. VLO is due to split 2-for-1 on December 16th so our post-split target will be a rise to $4.75.

Suggested Options:We are not suggesting new strangle positions at this time.

Dropped Calls

Walter Inds. - WLT - close: 48.88 change: -1.35 stop: 47.95

WLT displayed some relative weakness on Friday. The stock lost 2.68% on no news with volume coming in way above its average. These are bearish developments. The breakdown under the $50 level looks like bad news. More aggressive traders may want to hold on a bit longer since WLT looks like it has some short-term support near $48. This could just be a bull flag pattern. We would rather exit now and just keep an eye on WLT for a new move over $51.50-52.00.